Bulletin

RSA Security tumbles as CFO quits

Firm also sets $145M acquisition, restructuring

By

MichaelPaige

LOS ANGELES (MarketWatch) - RSA Security Inc.'s stock tumbled 15% on Monday after its chief financial officer quit to take another job and the company said it would make a $145 million acquisition and restructure its engineering operations.

RSA also affirmed its prior financial outlook for the fourth quarter.

Shares of the Bedford, Mass.-based maker of Internet and network security software and hardware fell sharply on the news, giving up $1.94 to close at $11.25. At its worst level for the session, the stock sank 18% to as low as $10.83 and it has ranged from $9.75 to $22.94 over the past 52 weeks.

RSA
RSAS
said Jeff Glidden resigned his position as CFO to pursue an investment and employment opportunity with a private venture outside the security technology industry.

The company's chief executive, Art Coviello, has taken over the top finance role until a successor can be recruited, the firm said. Coviello had previously served as CFO.

Glidden was viewed as having solid credibility among investors and his departure was likely to be viewed negatively, analysts said.

J.P. Morgan analyst Sterling Auty called Glidden's resignation the "biggest news of the day" for RSA, pointing out that the executive had been responsible for improving the firm's operating margins and operation efficiency.

"We view this is a significant negative," Auty told clients in a note. He rates the company's stock neutral.

Analyst Todd Weller at Stifel Nicolaus agreed the CFO's resignation was likely to be viewed negatively "given the strong credibility he had with the Street."

Meanwhile, the company said it agreed to buy Cyota, a privately held New York-based company that provides online security and antifraud technology to financial institutions.

Under the deal, expected to close within 30 days, RSA will pay $136 million in cash, fund a three-year retention pool for $5.5 million and additionally pay at least $3.5 million to assume all of Cyota's outstanding stock options.

RSA said it expected the deal to add around $22 million to $25 million to its revenue in 2006, while it will begin adding to its bottom line in the second half of next year.

Weller, the Stifel Nicolaus analyst, said the acquisition "could better position RSA to compete in strong authentication solutions in the financial services vertical, the acquisition is not cheap and RSA's track record in terms of acquisitions will likely yield skepticism."

"Overall, we believe the acquisition makes sense strategically, but whether it makes sense financially remains an open question," he commented to clients.

The analyst maintained a hold recommendation on the company's stock.

Firm sees restructuring charges totaling $10 million to $14 million

For the fourth quarter, the company expects earnings of 9 cents to 16 cents a share -- including a restructuring charge of 3 cents to 6 cents a share -- on revenue of $78 million to $82 million. Excluding the restructuring-related charges, RSA put its profit at 15 cents to 19 cents a share for the period.

The current average of analysts' estimates on Wall Street calls for a fourth-quarter profit of 16 cents a share on revenue of $80.1 million, according to a Thomson First Call survey that usually excludes one-time items.

RSA plans to consolidate its engineering activities in four core locations. Some 120 jobs will be relocated under the overhaul, which it will carry out in phases through December of next year, it said.

RSA expects its total restructuring charges, which are related mostly to facilities and an unspecified number of job cuts, to total $10 million to $14 million, beginning in the fourth quarter. The company expects to book $3 million to $6 million of the charges during the fourth quarter.

RSA said it doesn't expect to begin seeing the full benefit of the restructuring until the fourth quarter of 2006. It forecast the move would save it $4 million to $6 million in costs annually.

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